Market Commentary

Updated on March 28, 2024 10:06:10 AM EDT

Yesterday's 7-year Treasury Note auction did not go as well as Tuesday's 5-year Note sale but did draw an investor interest that the benchmarks indicate was slightly above average compared to other recent sales. Bonds did improve enough after morning rates were posted that a decent number of lenders issued an intraday improvement to pricing. However, the bond rally started long before the auction results were announced at 1:00 PM ET, meaning the auction was not the cause of it.

Starting this morning's batch of economic data was the second revision to the 4th Quarter Gross Domestic Product (GDP) reading at 8:30 AM ET. It showed the U.S. economy actually expanded at a 3.4% annual pace during the last three months of the year, up from the previously estimated 3.2%. By theory, a stronger economy makes bonds less appealing to investors and leads to higher mortgage rates. Realistically though, this data is quite aged at this point and we will get the current quarter's initial reading next month. This has prevented a stronger reaction to the data than what we have seen so far.

Last week's unemployment update was also posted early this morning, revealing 210,000 new claims for benefits were made. The previous week's total was revised from 210,000 to 212,000, indicating a week-over-week decline in initial filings. Because this is just a weekly snapshot of part of the employment sector and the variance from forecasts was minor, we are labeling the report neutral-to-slightly negative for rates.

We also got March's revised Index of Consumer Sentiment from the University of Michigan this morning. They announced a reading of 79.4 that is noticeably higher than the 76.5 that was predicted. The increase from February is a sign that consumers are feeling better about their financial and employment situations. This is bad news for bonds and mortgage rates because a higher level of confidence usually translates into stronger consumer spending numbers, boosting economic activity.

The bond market will close at 2:00 PM ET today and remain closed until Monday morning. Stocks will trade a full day today but will also be closed tomorrow for the Good Friday holiday. It is somewhat common to see some weakness in bonds before the early close as traders look to protect themselves from news headlines over the extended weekend. This raises the possibility of seeing a minor increase in rates before the end of the shortened day.

We will be getting a very important inflation reading tomorrow morning despite the markets being closed. February's Personal Income and Outlays report is set to be posted at 8:30 AM ET tomorrow. This data helps us measure consumer ability to spend and current spending habits. If income is rising, consumers are more likely to make additional purchases in the near future, further fueling economic growth. Therefore, weaker than expected readings would be good news for bonds and mortgage rates. Also in this release is an important inflation index (PCE) that the Fed uses to gauge inflationary pressures. It is the PCE that has the potential to be a market-mover, but we won't see a reaction until Monday morning. Forecasts are currently calling for a 0.4% rise in February's income and the same in spending. Forecasts show the core PCE index rising 0.3%. The weaker the readings, the better the news for mortgage rates.

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